The 66-year-old, who has written of the incident in his book Always Managing: My Autobiography, which is being serialised by the Daily Mail, revealed that Merson asked him for a favour before their clash with Millwall.
"He came into the dressing room with a big, brown bag full of readies. 'Would you look after this for me, gaffer?' he asked," wrote Redknapp. "'It's 30 grand. It's for a bookmaker, an Irish mob. They're after me and I've got to meet them after the game. Will you look after it for me until then?'
"I couldn't leave it in the changing room, but I almost always wear a suit on the touchline. That day I changed. I put a tracksuit on so there was more room to conceal these readies."
Redknapp revealed that the notes started to slip down his trouser leg during the match, which ended 5-0 to Pompey.